Grainger profit hit by settlement-reserve costs

BenFox

W.W. Grainger Inc.'s
GWW, -0.71%
third-quarter profit fell 15% as the industrial-goods supplier recorded a significant settlement reserve, though sales in all three of its primary businesses improved.

The company lowered its sales-growth estimates for the year, now expecting a rise of 11% to 12%, down from 12% to 14%. It affirmed its full-year earnings expectations.

Grainger, which offers goods ranging from lighting to janitorial products, had posted double-digit earnings growth in recent quarters amid demand from businesses and institutions trying to consolidate suppliers. The company, which is sometimes seen as a bellwether for the national economy because of the breadth of its offerings, has recently seen its stock rise as investors see Grainger benefiting from the resurgence of U.S. manufacturing.

Grainger has also expanded its global footprint through acquisitions, recently buying Brazilian industrial-supplies distributor AnFreixo. But Grainger's international expansion has faced challenges as well. In February, Grainger said it was investigating whether employees of its Chinese subsidiary had bribed foreign officials.

Grainger posted a profit for the quarter of $155.4 million, or $2.15 a share, down from $182.1 million, or $2.51 a share, a year ago. During the quarter, the company recorded a $70 million reserve for a settlement in principle to resolve pricing-disclosure issues relating to government contracts with the General Services Administration and U.S. Postal Service. Excluding the reserve, per-share earnings were $2.81.

Revenue grew 7.9% to $2.28 billion.

Analysts polled by Thomson Reuters most recently projected earnings of $2.89 a share on revenue of $2.32 billion.

Gross margin edged up to 43.6% from 43.2%.

Sales in the U.S., which account for most of the total revenue, rose 3.6% to $1.78 billion, driven by 1% higher volume. In Canada, sales rose 9.9%.

Sales from its other-businesses segment rose about 52% on sales from Fabory International, a European fastener distributor acquired last August, and AnFreixo, acquired in April. Excluding those acquisitions, the segment's sales rose 20%, the company said.

Shares closed Monday at $215.86 and were inactive premarket. The stock is up 15% this year.

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